Fannie, Freddie Loans Deemed ‘Safe’ Under Mortgage Rules

Sen. David Vitter (R., La.) has questioned whether the risk-retention rules should apply to Fannie and Freddie.

Loans sold to government-controlled mortgage giants Fannie Mae and Freddie Mac will indeed be deemed “safe” under new rules designed to encourage responsible lending practices, according to a summary of a proposal developed by federal regulators.

Six federal agencies are considering publishing the rules for comment, starting with the Federal Deposit Insurance Corp. on Tuesday. They were required by the Dodd-Frank financial overhaul law passed last summer, which required issuers of securities backed by mortgages and other loans to hold 5% of the credit risk. The goal is to require banks to have more “skin in the game” and avoid a repeat of the lax lending that led to the financial crisis.

The market for mortgage-backed securities issued without the government’s guarantee has been virtually dormant since the housing market went bust. The new rules are meant to lay out which loans can be included in those securities. (See the Journal’s story last week.)